Farm bills seek funds, immunity from taxes

Basil, spinach and watercress are things John Dobovan is used to helping raise. But this year, the Waimanalo farmer is part of an unprecedented effort by Hawaii’s farm industry to help bills rise through the Legislature.

Key industry leaders put together the Local Food Coalition several months ago to spearhead and back efforts to get farm-related legislation passed by state lawmakers this year.

More than a dozen bills originating from the coalition, along with a few independent of the group, have passed the halfway point in the legislative session, crossing from the House to the Senate or vice versa.

The effort, coalition leaders say, appears to be making significant headway at the state Capitol, where crafting bills into laws is a notorious row to hoe.

Pending measures include proposals to give the industry tax exemptions, funding for infrastructure, lower rent on state land and an advantage supplying state entities such as schools and hospitals.

"If we’re going to grow (Hawaii) agriculture, we’re going to need help to make these farms viable," said Dean Okimoto, president of the Hawaii Farm Bureau Federation, an organization that historically led broad legislative initiatives in agriculture and is part of the new coalition.

Other coalition members include the investment firm Ulupono Initiative, the Hawaii Food Manufacturers Association, the Hawaii Association of Independent Schools, the Kohala Center, 4 Ag Hawaii and farm associations representing livestock and aquaculture.

"This is agriculture speaking in one voice saying there are things that really matter to us in our lives and our ability to put local food on local plates," said Kyle Datta, Ulupono general partner.

The coalition said it recognizes that budget challenges still face the state, but contends that taxpayer spending to help local farmers will provide a public financial return and make Hawaii more self-sufficient in its food supply.

The coalition estimates that its legislative package, with an initial one-time cost to the state of about $20 million mainly for irrigation infrastructure, would trigger $150 million in private investment in Hawaii agriculture that could double the local food supply in a market where close to 85 percent of food is imported.

Such growth would generate $8.7 million in annual state tax revenue and produce more than 3,000 local jobs, the coalition projects.

Some bills, however, have raised concerns and criticism.

The bills causing the most contention involve general excise tax exemptions for sales of locally produced fruits and vegetables, and an exemption for fees paid to slaughter locally produced poultry and livestock.

The state Department of the Attorney General advised that these two proposals, House Bills 503 and 747, might violate the U.S. Constitution’s Commerce Clause prohibiting states from imposing taxes that give local businesses a direct commercial advantage.

The department said this issue was tested by a tax exemption Hawaii’s Legislature provided for "okolehao," a liquor distilled from ti root, and certain locally produced fruit wines that was challenged in 1984 and struck down by the U.S. Supreme Court.

More critical comments were voiced by the Tax Foundation of Hawaii, which said giving a tax break to one type of activity places more of the total expense of running the state on all other taxpayers.

"So one has to ask what is the unusual burden of taxes borne by this particular industry or activity or is this proposal nothing more than pandering to the fad industry of the day?" the foundation said in written testimony on HB503. "There is literally no justification for this proposal."

The produce tax exemption bill isn’t part of the coalition’s package, but the Farm Bureau supports the measure and suggested that all locally produced agricultural products be included in an exemption.

The state Department of Taxation estimated it will cost $8 million a year for the produce tax break and $1.8 million a year for the slaughter tax break.

The Hawaii Cattlemen’s Council estimated the slaughter tax break would cost less than $50,000 a year, help reduce local meat prices and encourage more livestock production.

Two other bills proposing tax exemptions for local farmers are also alive.

House Bill 96 initially proposed an income tax break on the first $50,000 of income for Hawaii family farms. And Senate Bill 595 would provide a general excise tax exemption on fees for loading and shipping a variety of agricultural commodities, including milk, eggs, beef and farm-raised fish, between islands. Fruits and vegetables are already exempt.

One bill that the coalition said wouldn’t be a significant expense to the state but would provide a big return for Hawaii agriculture is Senate Bill 974, which would allow farm infrastructure to be financed with special purpose revenue bonds.

The coalition said such things as irrigation, hydro­electric power, feed mills and processing facilities would benefit from being included in the state special purpose revenue bond system, which uses the state’s credit rating to sell low-interest bonds for projects supported by revenue from what is built with bond proceeds.

Presently, such farm infrastructure often doesn’t qualify for revenue bond financing, according to the coalition, which estimates that there is demand to finance $150 million worth of such projects.

The coalition also is urging lawmakers to appropriate $5.6 million to improve irrigation ditches on Oahu, Hawaii island and Kauai.

Ulupono calls ditch infrastructure the single most important capital expenditure the state can make to help agriculture. "This request represents a modest investment with a long-term community good" that will allow more land to be farmed and generate more tax revenue, the organization said in testimony on the measure, House Bill 1263.

One coalition bill aims to help farmers sell more of what they produce by exempting state entities from procurement rules when buying fresh produce and meat, animals and plants.

This bill, Senate Bill 991, would give more freedom for schools, hospitals and prisons to buy products from local farmers without regard to competitive mainland supplies.

The state Procurement Office supports the bill, saying that agencies should be able to select the best available source for items that are highly perishable and vary in availability, quality and quantity.

Another bill pertaining to government regulation would exempt nonresidential farm structures outside urban areas from county building codes. Senate Bill 586 is alive along with its companion, House Bill 489.

The Farm Bureau said building codes designed for homes and urban commercial buildings aren’t appropriate for farm structures like equipment sheds, greenhouses and fish tanks. The bureau also said most states provide exemptions for rural farm buildings, which is another reason Hawaii farmers have a hard time competing with imported food.

Representatives of most counties oppose such a change, mainly over safety issues.

Dobovan, the Waimanalo farmer who raises basil, spinach, watercress and several other crops (on the farm Nalolicious), said the bill will make the lives of farmers easier and improve their chances for success.

"I want to tell you that it is already difficult enough to survive in this business without unnecessary and time-consuming red tape," he said in written testimony.

Of course, how much help Dobovan and other local farmers receive from the Legislature this year remains to be seen.

Some coalition bills met with early termination, including measures that proposed lower electricity rates for farmers, a bigger tax credit for spending on important agriculture lands, and $8 million to develop farm lots on the former Galbraith Estate in Wahiawa.

Still, industry advocates believe more widespread support for local agriculture exists because of growing awareness of food security and self-sufficiency issues and backing from Gov. Neil Abercrombie.

The governor’s administration last year published a report that recommended investing more than $13 million in local agriculture over the next two fiscal years, and estimated that increasing local food production by 10 percent would keep $313 million in Hawaii’s economy.

Abercrombie also has touted agriculture as a focus area in his New Day plan, and met with industry leaders to assess how he might help. The engagement helped inspire the coalition’s formation.

Datta of the Ulupono Initiative said the coalition effort is exciting and different. "It shows how important local food is and having healthy local food be affordable."